The purpose of this blog is to provide analytical commentary on formal and informal labour organisations and their attempts to resist ever more brutal forms of exploitation in today’s neo-liberal, global capitalism.

Thursday, 20 June 2013

Do not abandon the state as a site of social struggle: Lessons from the Asian Financial Crisis for the Eurozone!

In 1997, Asia experienced its own financial crisis. In this
guest post, Mi Park analyzes the
root causes of the Asian crisis and the current Eurozone crisis and compares
the politics of the anti-austerity movements in Asia and Europe. She asks what
lessons Europe can learn from the Asian experience.

Contrary to the
propaganda of austerity that a country’s debt crisis is caused by government profligacy, tax evasion, and
people’s overconsumption, lax work ethics, and the pervasive sense of
entitlement in the debtor country, the real causes of debt crises are often
both structural (a country’s place in the global economy) and institutional (banking
regulations). The Asian financial crisis
of 1997 and the current Euro-zone crisis share structural and institutional
elements conducive to a region-wide financial crisis. In both cases, financial
liberalization enabled excessive credit circulation in countries with high
growth rates. Secondly, at the sign of a declining rate of profit, foreign
capital took flight from countries of high current account deficits. A contagion
effect spread as more speculative capital withdrew from countries with a high
rate of external short term debt. As countries with a debt payment crisis turn
to international financial institutions (IFIs) for help, fiscal rescue packages
were promised on the condition that austerity measures were implemented. Without
addressing the root causes of the crises, IFIs insisted on the structural
adjustment programs (SAPs) as a condition for loans and demanded that
public services should be reduced to bare bones minimum so that a bigger
portion of government budget can be dedicated to debt servicing. This is a very
dangerous idea that was tried in Asia but utterly failed.

Austerity
Politics Compared: Asia and Europe

A comparison of the
Asian case with the European one reveals a number of salient similarities and
differences. The impact of austerity on society in both cases is catastrophic
with massive unemployment and social unrest. They differ, however, as to how
the state and civil society have responded to IFIs’ austerity politics.

At the peak of the
Asian crisis, millions of people were thrown out of work and faced abject
poverty in Thailand, Indonesia, and South Korea (called the Asian Three thereafter).
Due to the IMF’s insistence on austerity measures, the Asian Three found their
hands tied, unable to help mitigate social unrest resulting from massive
unemployment and increased poverty. The situation developed into full blown
social crises, resulting in major political upheavals in the Asian Three. In
Thailand, tapping into the pervasive anti-IMF populist nationalism during the
Asian crisis, Thaksin’s Thai Rak Thai Party seized power with strong support
from the wider population. Although neoliberal restructuring continued under
his administration, the Thaksin government moderated destabilizing impacts of
neo-liberalism by extending social welfare measures. In Indonesia, a nationwide
anti-austerity movement eventually forced the pro-IMF Suharto regime to resign.
The new administration,
now more responsive to popular demands, did not implement many austerity
measures previously planned. In South Korea, anti-IMF
sentiments contributed to the electoral victory of the opposition party leader,
Kim Dae-Jung who was most critical of the International Monetary Fund
program. As in the case of Thailand and Indonesia, the Kim
administration did moderate the scope of neoliberal restructuring and introduced
an extensive social welfare program.

Similar to the
Asian Three, massive protests against austerity measures have taken place in Greece,
Spain and Portugal (the European Three thereafter). Unlike the case of the
Asian Three, a large segment of the anti-austerity movement in Europe eschewed electoral
politics. As a result, the politically elusive anti-austerity movements failed
to forge a government with a popular mandate that is able to challenge the IFIs.
The Indignados (‘the Outraged’), also
known as the 15 M movement in Spain and the anti-austerity protesters in the
Greek Syntagma square are cases in point.

In Spain, a significant number of anti-austerity protesters
refused to engage in electoral politics and as a result, the pro-austerity, conservative
Popular Party was elected into power. As in the case of Spain, Portugal also
saw an electoral victory of right-wing parties that are happy to cut welfare
programs. In Greece, too, many anti-austerity protesters, disenchanted with
electoral politics, refused to utilize electoral venues for a social change. In
the absence of an alternative political opposition party backed by
anti-austerity movements, the far-right political forces take advantage of the situation
by exploiting mass resentment. With the anti-Troika, ultra nationalist narrative
that immigrants and foreigners siphon off national wealth, the far-right fringe
parties such as the Golden Dawn Party in Greece gain increasing support from
the disgruntled populace who resent the sharing of reduced public services and
welfare benefits with immigrants.

Partly due to these
different state-civil society dynamics in Asia and Europe, the outcomes of the
two financial crises have so far turned out to be different. With
anti-austerity administrations in power, the Asian Three reversed IMF austerity
policy and expanded social welfare. As a result, they were able to spur further
economic growth and significantly reduced their external debt within a
relatively short time period. In sharp contrast, with the electoral victory of conservative
parties in the European Three, austerity measures are likely to prolong
economic downturns and social instability in Europe. More alarmingly, the rise
of ethno-exclusionary political parties in Europe can further divide civil
society as sections of the populace turn against the most marginalized and
powerless in society.

We can draw a valuable lesson from the Asian financial crisis for the
Eurozone. As shown in the case of Asia, the ideology of austerity can be defeated.
To this end, anti-austerity movements in Europe should not abandon
the state as a site for social change.

This blog post is
based on the article “Lessons from the Asian Financial Crisis for the
Euro-zone: A Comparative Analysis of the Perilous Politics of Austerity in Asia
and Europe”, Asia Europe Journal, Vol.11/2 (2013).

Mi Park is a
visiting professor at the University of British Columbia, Canada. She can be
reached at mipark@alumni.lse.ac.uk